Being an MSME, you can enjoy a multitude of benefits from various government schemes. Besides various concessions and subsidies, MSMEs also enjoy better financing options. A lot of banks and NBFCs offer MSME loans at attractive interest rates. However, to avail these benefits, you must first register yourself as an MSME. Before registering a business as an MSME, it is necessary to understand its definition along with the other aspects.
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Definition of MSME
MSME is an acronym for Micro, Small, and Medium Enterprises. The MSME Act of 2006 segregates such enterprises based on size and type as mentioned below:
Types of MSMEs
- Manufacturing Enterprise: Organizations that primarily focus on the manufacture or production of the materials and goods.
- Service Enterprise: Organizations that mainly focus on providing services to other organizations or end-users.
Based on the size, MSMEs are of three types, and the equipment cost limit as per the MSMED Act 2006 is as follows:
- Micro: The enterprises that come under the micro category must have their plant and machinery investment under 25 lakhs. This rule applies to the manufacturing and production industry. The service-based enterprises are categorised under micro-enterprise when their equipment cost is below 10 lakhs.
- Small: The enterprises that come under the manufacturing industry and have plant and machinery investment of more than twenty-five lakhs but under five crores. Conversely, in the case of the service industry, the plant and machinery expenditure must be more than ten lakhs and less than two crores.
- Medium: An enterprise under this categorisation should have an expenditure between the ranges of five and ten crores. This categorization is strictly for manufacturing. For service enterprises, it should be within the range of five crores.
However, the government has recently updated the limits, and now, the enterprises are categorised based on their annual turnover. Besides, the MSME government has also removed the segregation of manufacturing and service enterprises. The new MSME definition includes:
- Micro Enterprise: less than Rs. 5 crores
- Small Enterprises: between Rs. 5 crores and 75 crores
- Medium Enterprise: between Rs. 75 crores and Rs. 250 crores.
How toe register as an MSME?
Enterpriss falling under the criteria mentioned above can register as an MSME under the MSMED Act, 2006. Though it is not compulsory, registering as one will make your entity eligible for multiple benefits provided by the government and banks. To register as an MSME, visit the MSME portal, select a suitable category, and provide the required documents. You can also get it done by a registered CA or an advocate.
Business Loan Eligibility Criteria For An NBFC Business Loan
Benefits of MSME
- Bond-free loans from the Bank: The Government of India has introduced the Credit Guarantee Fund Scheme (CGS) so that the small enterprises can quickly get pledge-free MSME loans. This scheme is eligible for both existing as well as contemporary enterprises.
- Discount on License Registration: The organizations that are listed under MSME get 50% subsidy on the license registration.
- Interest Rate Relief on Overdraft: The bank scheme also ensures that the enterprises registered under MSME get at least 1% relief on the interest in OD (overdraft).
- Payment Protection: The ministry secures the MSME-registered enterprises’ delay in payments. The customers are required to clear all debt within a mentioned time. In case there is no particular date mentioned, then the payment must be made within fifteen days of delivery. Further, for any delay in payment from the buyer, he/she has to pay compound interest to the MSME registered enterprise.
- Upgradation of Technology and Quality: The Government of India is implementing clean energy in the manufacturing of MSME-registered enterprises. The expenditure has been upgraded to a high level for the better quality of the manufactured products. After the update in technology, the product quality has also improved on national as well as international level.
- Marketing Assistance provided by the Government: GOI (Government of India) assorts several exhibitions of goods, trade fair, and exchange programs articulated by enterprises on an international level. The enterprises registered under the MSME get the opportunity to cooperate with other countries across the world. In this way, organizations are articulating more benefits and financial abundance.
What are MSME Loan Options available in India?
Every enterprise needs financial assistance at one point or the other. MSME or SME loans can help if the company is planning to scale up by buying new equipment, upgrading its infrastructure, or any other means. Various government and private banks and NBFCs provide MSME loans with minimal documentation and low-interest rates. There are three kinds of loans available for MSMEs in India, i.e., turnover based loans, RBI/ MSMED Act-investment in plant and machinery, and credit requirement-based loans. Now that we have cleared that up, here are a few advantages of SME loans.
- Quick & Easy Approval Process: It is easy to apply for an MSME loan. The processing of the loan after your submission of documents is speedy.
- Minimal Eligibility Criteria: The most important criteria for applying for an MSME loan is that you have to provide just the ITR of the previous year and a minimum of 5 Lakh annual banking credit.
- Flexible Repayment Tenor: MSME loans usually have a very flexible payment tenor. You can choose short or long tenure as per your convenience.
Micro, Small & Medium Enterprises (MSME) are now defined on the basis of their annual turnover. These enterprises offer employment to many people, irrespective of their skills and educational qualifications. MSMEs are conspicuously contributing to the economy by supplying raw materials for commercial enterprises.
Nevertheless, one company must apply online to get certified as an MSME inscribe. This certificate can be availed on a digital platform without any physical mimeograph.
Over the years, the MSMED Act has worked as an engine for India’s uplifting economy. It has also made an inevitable contribution towards the betterment of youngsters in the country as this project has offered them employment.
The owners of the MSMEs must be up to date with current and upcoming initiatives taken by the GOI so that they can get the full benefit of this act. This enterprise project has done right for almost every aspect of society. It has resolved the employment issue of this nation and has made way for small businesses to grow. Not only that, this is an innovative platform for the Indian government to get financial advancement.
MSME loans are one of the ways through which you can expand your business. The loan is easy to procure, and it can reach up to 500 crores. The repayment of an MSME loan can reach up to 15 years.
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